Bank of Canada poll shows little rate pressure

Mon Jan 14, 2013 11:50am EST
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By Louise Egan

OTTAWA (Reuters) - Canadian businesses saw less pressure on production capacity in the fourth quarter and were concerned about demand over the next year, according to a Bank of Canada survey released on Monday that provided more reasons for the bank to delay an interest rate increase.

Still, in the central bank's winter business outlook survey, conducted in November and December, companies were more upbeat about sales and investments than they were in the previous quarter's survey, even though fears about the U.S. fiscal cliff were intensifying when the fourth-quarter survey was taken.

They attributed the more optimistic outlook to new strategies they were adopting to remain competitive in a challenging environment rather than to a strong economy or expansion plans, the bank said.

"Overall, uncertainty continued to temper expectations for business activity," the bank said in a summary of the survey's findings.

Canada long ago rebounded from a 2008-09 recession and recovered all the jobs lost during the downturn. The economic expansion hit a bump in the second half of last year.

Signs of greater slack in the economy along with tame inflation suggest the Bank of Canada will be in no rush to raise its benchmark interest rate, currently at 1.0 percent, even though it has been signaling intentions to raise the rate for several months.

Market players unanimously expect it to keep the rate on hold on its next decision date on January 23. They forecast the next rate move will come either later this year or in 2014.

The bank said "considerably fewer" companies reported they would have difficulty meeting a sudden increase in demand, with the portion reporting "some" or "significant" difficulty dropping to 34 percent in the fourth quarter from 47 percent in the third.   Continued...

The Bank of Canada building is pictured in Ottawa March 3, 2009. REUTERS/Chris Wattie